October 22, 2013

No Early Injunction in Challenge to Health Care Regulation

A challenge by a group of individuals and businesses to the IRS' enforcement of a provision of the federal health care law survived the government's attempt to dismiss the case, but a judge denied the plaintiffs' bid for an early injunction blocking the regulation at issue.

U.S. District Senior Judge Paul Friedman today denied the government's request to dismiss the case, which was based on an argument that the plaintiffs lacked standing to sue. The judge also denied the plaintiffs' motion for a preliminary injunction, finding they failed to show at this stage of the case they were likely to succeed on the merits or face "irreparable" harm without an immediate order.

Jones Day partner Michael Carvin, the lead attorney for the plaintiffs, declined to say after today's hearing whether the challengers planned to appeal the ruling on the injunction. Carvin said the plaintiffs' priority was getting a final decision from the court on the merits of their claims as quickly as possible.

The plaintiffs are challenging a rule making tax credits available to low- and middle-income residents of states that declined to set up health care exchanges under the Affordable Care Act. The IRS regulation violates the text of the health care law, the plaintiffs alleged, and would subject individuals and certain employers to the law's coverage requirements and penalties for failing to comply.

Friedman said the case could proceed because at least one of the plaintiffs, a West Virginia man named David Klemencic, had standing to sue. West Virginia did not set up its own health insurance exchange, meaning residents would have to use a national exchange run by the federal government. Klemencic, according to briefs, would be exempt from the health care law's coverage requirements because of his low income, but would lose that exemption once he was deemed eligible for the tax credits.

Since Klemencic was facing a choice between buying health insurance he didn't want or paying an annual penalty of at least $100, Friedman said, Klemencic showed he would be harmed by the IRS regulation and could defeat the government's motion to dismiss.

However, Friedman said, the plaintiffs failed to prove at this point they were likely to succeed on their claims. He added that both sides made arguments that could win in the end, but he needed more briefing and information.

The plaintiffs' case comes down to the language of the health care law, which the challengers argue makes clear the tax credits are only available to residents of states that set up insurance exchanges. The Justice Department has argued the government "stands in the shoes" of states that declined to set up exchanges and that Congress intended the tax credits to be available nationwide.

Friedman asked for expedited briefing as the case moved forward and said he expected to make a final ruling before February 15, which was cited as a deadline for applying for an exemption from the law's requirements. Carvin, who argued against the health care law before the U.S. Supreme Court in March 2012, said after the hearing that Friedman showed he understood "time is of the essence."

Joel McElvain, a senior trial counsel at the U.S. Department of Justice, argued for the government.